Stock Analysis

Did The Underlying Business Drive Ducommun's (NYSE:DCO) Lovely 315% Share Price Gain?

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NYSE:DCO
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We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the Ducommun Incorporated (NYSE:DCO) share price. It's 315% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. Also pleasing for shareholders was the 38% gain in the last three months.

See our latest analysis for Ducommun

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, Ducommun became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Ducommun share price is up 105% in the last three years. Meanwhile, EPS is up 27% per year. That makes EPS very close to the 27% share price growth, each year, over the same period. That suggests that the market sentiment around the company hasn't changed much over that time. Arguably the share price is reflecting the earnings per share.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
NYSE:DCO Earnings Per Share Growth February 8th 2021

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Ducommun's earnings, revenue and cash flow.

A Different Perspective

It's nice to see that Ducommun shareholders have received a total shareholder return of 33% over the last year. That gain is better than the annual TSR over five years, which is 33%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Ducommun better, we need to consider many other factors. Even so, be aware that Ducommun is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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What are the risks and opportunities for Ducommun?

Ducommun Incorporated provides engineering and manufacturing products and services primarily to the aerospace and defense, industrial, medical, and other industries in the United States.

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Rewards

  • Trading at 25.6% below our estimate of its fair value

  • Earnings are forecast to grow 2.88% per year

  • Earnings grew by 283.3% over the past year

Risks

  • Debt is not well covered by operating cash flow

  • High level of non-cash earnings

  • Significant insider selling over the past 3 months

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